TSX, LSE takeover falls apart

The LSE and TMX have cancelled their plan to merge, saying they do not have enough support from TMX shareholders to complete the deal.

Shareholders of TMX Group Inc., the parent company of the Toronto Stock Exchange, were poised to vote Thursday morning in Toronto on the deal that would have seen the two companies join forces.

But after tabulating proxy votes sent in prior to a 5 p.m. Tuesday deadline, it became clear  the deal only had the support of a majority of shareholders — not the two-thirds needed, TMX said Wednesday.

A consortium of 13 Canadian banks, pension plans and financial firms known as Maple Group had launched a rival bid for Canada's largest stock exchange shortly after the TMX/LSE deal emerged in February.

'I think this was not in the national interest, very clearly' —NDP Industry critic Peter Julian

Tom Kloet, the CEO of TMX Group, said it will now review the Maple bid. "Although we will not join forces with LSEG, our business is strong and I have enormous confidence in the continued success of our company," Kloet said.

"We had a majority vote, but it became clear we would not get the two-thirds required," Kloet said.

In a statement, LSE Group said it was disappointed that the deal fell apart despite having a majority of shareholder support, but the company said it agreed with TMX's decision to terminate the merger.

"We believe the merger would have been a unique opportunity for TMX Group shareholders to be partners in a truly international group," CEO Xavier Rolet said.

TMX said it will  pay a $10-million termination fee to the LSE, and a further $29 million if the acquisition with Maple goes through.

Maple head Luc Bertrand issued a statement Wednesday afternoon, saying the group looks forward to working with regulators and other stakeholders to see if their own $50-a-share takeover proposal might have a future. 

"We commend the LSE and TMX for their efforts, and hope we may now engage in a positive dialogue with the TMX Group board," Bertrand said. "We genuinely believe Maple's vision represents the best way forward for TMX Group and the Canadian capital markets."

Hurdles remain

Although pitched as a "merger of equals," LSE's bid — which would have handed only 45 per cent control of the new entity to TMX shareholders — had trouble rallying support from shareholders, regulators, legislators and investors from the start.

From a financial perspective, experts predicted Wednesday that the Maple deal would go ahead. But whether it's able to get over regulatory hurdles is another question.

"It would look very bad on Maple to renege or alter their offer at this point, so I suspect they will come together with TMX on a deal," said Ian Nakamoto, director of research at investment firms MacDougall, MacDougall & MacTier in Toronto. "But a lot of work will have to be done to get past some of the monopolistic and economic nationalism concerns that have been raised."

Because it's a Canadian takeover, Maple's bid would not necessarily require a government review under the Investment Canada Act's "net benefit" test of any deals over $299 million.

But regulators in five provinces and Canada's Competition Commissioner Melanie Aitken must be satisfied before any deal could go through.

The NDP was calling earlier on Wednesday for public consultations on the TMX/LSE merger. After the LSE deal fell apart in the afternoon, the NDP's Industry critic, Peter Julian, said he wasn't surprised by the shareholders' rejection.

"I think this was not in the national interest, very clearly. Some shareholders probably responded in that way," he said.

The federal government still needs to create a public and transparent process to review future takeovers or mergers that includes consultations, Julian said.

TMX shares were halted in Toronto just prior to the news at 1 p.m. When trading resumed roughly 30 minutes later, TSX shares were 2.5 per cent higher to $44.50. LSE shares were also more than 1.5 per cent higher in London after news of the deal's death broke.